California to get $750 million in energy crisis settlement

Marc Lifsher

SACRAMENTO — A Canadian power company will pay California electricity ratepayers $750 million to settle allegations that it bought electricity from the state and then sold it back at a huge markup during the energy crisis of 2000 and 2001.

The settlement with British Columbia Hydroelectric, owned by the province of British Columbia, is one of the largest of about 50 actions against power traders that emerged from state and federal investigations of the California electricity market, which melted down after passage of a disastrous electricity deregulation law in 1996.

To date, the lawsuits have returned $4.2 billion as refunds for overpayments. The California Public Utilities Commission will determine how the money is distributed among California's three privately owned utilities.

"California suffered through huge rate hikes and blackouts during the energy crisis," said Atty. Gen. Kamala D. Harris, who announced the settlement Friday along with the PUC. "This settlement brings long-awaited compensation to California ratepayers."

The large settlement should send a message to about 15 other power companies still being sued by California that they should cut similar deals, said PUC President Michael Peevey.

"It's a major advance toward closing the books on the energy crisis of 2000-2001," he said, "when California was crippled by excessively high electricity prices."

California's energy crisis-related lawsuits have been tough legal slogging, consuming thousands of hours of lawyers' time during the tenures of three attorneys general: Bill Lockyer, Jerry Brown and Harris. The cases involved platoons of experts from the state Department of Water Resources, the PUC and the three investor-owned utilities.

The chaos of rolling blackouts and brownouts fueled public outrage in the early years of the last decade and contributed to the recall of former Gov. Gray Davis and the election of successor Arnold Schwarzenegger in the fall of 2003.

Resolution of most of the cases left over from the energy crisis doesn't mean that California has escaped power pricing schemes devised by traders at major investment banks, experts cautioned.

Just in the last few months, federal regulators have pursued California-related market manipulation cases against Wall Street investment bank JPMorgan Chase & Co., British bank Barclays and Germany's Deutsche Bank.

Although California grid operators still must contend with market manipulation, the difference is "things are much better today," said Frank Lindh, the PUC's general counsel. State and federal regulators now "are much more aggressive about policing than they were in 2000 and 2001.

"That was the Wild West. Today it's not so rampant."

In the just-settled case, British Columbia Hydroelectric's subsidiary, Powerex Inc., allegedly gamed the California energy market. Harris said it purchased and exported to Canada huge quantities of electricity and then sold it back to California with extreme price markups.

According to the attorney general's office, the maneuver created the impression there was not enough energy on the market for sale, forcing desperate California grid operators to pay artificially high prices for power that suddenly became available on the spot market.

British Columbia Hydroelectric, based in Vancouver, admitted no legal liability or wrongdoing in settlement documents submitted for approval to the U.S. Federal Energy Regulatory Commission.

"This was a tough but necessary decision to protect taxpayers," said British Columbia Energy and Mines Minister Bill Bennett. British Columbia Hydroelectric faced a potential legal liability of as much as $3.2 billion if the long-running case dragged on in U.S. courts, he said.

The settlement, Bennett added, saved his government $50 million a year in legal costs and more than $125 million in potential interest payments to California.

It also will help the company repair its business relations with California, which has purchased $3.5 billion worth of British Columbia power since 2003, said Powerex Chief Executive Teresa Conway.